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Climate Change and Insurance: Lliuya v. RWE Makes History

Insurance Law360
March 22, 2019

By Deepa SutherlandJosé Umbert and Jason Reeves
To read this article in PDF format, please click here.

This is the third of five articles addressing climate change lawsuits in the context of (re)insurance.

Following on from our previous article which highlighted the developing and varying body of climate change cases outside of the U.S., this piece discusses the case of Lliuya v. RWE AG, currently in the evidentiary phase before the Higher Regional Court in Hamm, Germany.

Perhaps the most well-known climate change case today, it is the first lawsuit in Europe in which a person affected by the risks of climate change has sued a private company. The case evokes a David and Goliath tale: a Peruvian farmer taking on an energy giant in its home courts and, most importantly, having judicial confirmation that he can hold this giant to account. The very fact that the claim has been allowed by the court has made history.

Indeed, while the case has yet to be decided, it has already been hailed as a landmark case for climate change litigation: for supporters of climate justice, it already represents a victory of sorts; for businesses (and their insurers), it presents a very real risk.

Background: Lliuya’s Claim and the German Courts’ Response

The facts have lent themselves to press stories worldwide and have been well publicized. In 2015, Saúl Lliuya, a farmer and mountain guide in Peru, filed a lawsuit in Germany against RWE AG, the German utility company. Lliuya lives in Huaraz, a city in the Peruvian Andes, which is in the flood path of Lake Palcacocha. Due to the glacial retreat induced by climate change, the lake’s volume has increased and threatens to overflow or break its dam, posing a serious flood risk to Lliuya’s property house and the city of Huaraz.

Lliuya alleges that RWE, by emitting substantial volumes of greenhouse gases, or GHGs, has knowingly contributed to climate change that caused this glacial melt and should pay compensation proportionate to RWE’s contribution to global emissions for the costs of protective measures.

Lliuya brought the claim in the German court because the defendant — the parent company of the operators responsible for the GHG emissions — is based in Germany, and the relevant GHG were primarily emitted by plants in Germany. The claim is based on nuisance under German law,[1] namely that if property is interfered with, the owner may require the "disturber" to remove the interference. Lliuya is asking the court to determine that RWE is liable, proportionate to its contribution to the damage, for the costs of protecting his property from flooding. Lliuya is not asking for any money or damages for himself.

In 2016, the District Court in Essen rejected the claim on legal grounds, finding that no causal link could be proved between the GHG emissions of a single emitter and specific climate change impacts. The court concluded that the flood risk would still be present without RWE’s emissions, and the contribution of a single emitter, even RWE, did not have a significant impact on the effects of climate change.

Lliuya appealed. On appeal, the Higher Regional Court in Hamm accepted Lliuya’s legal arguments. The court explained why Lliuya’s claim is founded in law and rejected every defense raised by RWE, including RWE’s assertion that the law does not cover climate change since it is too complex and individual emitters are not liable. The court only decided on the admissibility of the case to proceed. On this point, the court confirmed that the distance between emissions and impacts does not rule out the application of general nuisance law. The court did not decide the case on the merits, and evidence supporting Lliuya’s claims must now be presented to independent court-appointed experts.

Causation: Climate Change Impacts Can Be Attributed Pro Rata to GHG Emitters

Lliuya claims specific causality between RWE’s emissions and the impairment of his property. While his claim accepts that there are no linear causations in climate science, he cites the Urgenda case[2] which affirmed that anthropogenic greenhouse gas emissions are causing climate change. This in turn is causing glacial retreat and the risk of flooding.

Lliuya argues that RWE’s emissions are a partial cause of the flood risk, and that the extent of RWE’s causal contribution is equal to RWE’s contribution to total global GHG emissions (Lliuya is only holding RWE responsible for its contribution to the cause of the flood risk, not for joint and several liability). Furthermore, this amount, and therefore RWE’s liability, can be quantified by the 2014 Carbon Majors Study[3] which attributes 0.47 percent of global emissions from 1751 to 2010 to RWE.

RWE’s share of global emissions is alleged to have been a "contributing cause" of the increased flood risk. In support of this contention, Lliuya cites to scientific opinion that in the case of GHG, all emitters necessarily contribute to global warming and its consequences; accordingly, each contributor "individually" has a causal impact, which is based on the size of its contribution. Lliuya argues that the impairments caused by individual emitters become significant because of their combined effects.

Lliuya does not claim that, without RWE’s emissions, the flood risk would be eliminated entirely, but that it would be reduced by a corresponding and legally relevant (i.e., not insignificant) amount. Lliuya notes that RWE is the largest single emitter of CO2 in Europe, and its annual GHG emissions are higher than those of some countries, such as the Netherlands.

Lliuya cites German and international authorities that support his argument that in cases of cumulative causation, where the damage is caused by the cumulative effect of multiple actors, a contributory cause and partial causation is sufficient to establish legal responsibility and it is enough to prove that RWE contributed materially to the damage. In contrast, the approach by the lower court would mean that in cases where the damage is caused by multiple parties, none of those parties would be legally responsible.

The Higher Regional Court in Hamm accepted Lliuya’s legal argument. The court confirmed that it is enough that RWE’s emissions are partially responsible for the flood risk, and that in the case of multiple "disturbers," each "disturber" must eliminate its own contribution. Further, the court confirmed that RWE’s share of emissions is not "insignificant" for the purposes of the claim.

In terms of evidence, Lliuya’s claim relied heavily on scientific studies, from those on lake levels to the 2014 Carbon Majors Study to attribute emissions to individual companies. Lliuya relied on assessment reports by the Intergovernmental Panel on Climate Change to show causation, in particular those attributing climate change to glacial retreat in the region. Lliuya argued that climate models — which contain facts and assumptions — are essentially technically aided expert statements. RWE objected that no proper evidence had been provided and had rejected climate models as a means of proving causation in court. The appeals court confirmed that climate models are suitable to provide legal evidence, depending on the circumstances.

Significance: A Road Map for Private Climate Change Damages Litigation

This case has been hailed as a legal test case to clarify responsibilities for climate change and its consequences. Irrespective of the outcome on the evidence, the court’s decision to allow the case to move forward is significant on many fronts:

  • The fact that a citizen can legitimately bring a claim against a carbon major for damage caused almost 11,000 kilometers away illustrates the potential geographical scope of climate change liability;
  • An emitter can be held responsible for damage or risks caused by climate change in other countries as long as science can prove partial causation;
  • In terms of proof, climate models have generally been accepted as tools for giving legal evidence; and
  • It is the first time a court has recognized that a private company can be held responsible on a theory of nuisance for its share in causing climate change-related damage to private property.

Whatever the outcome of the Lliuya case, it shows that polluting companies face a real risk of being sued and this has implications for their legal duties. Affected companies may have a duty to inform their shareholders about this material risk and build financial reserves to prepare for both the costs of defending litigation and payment of damages. Directors should perhaps disclose climate-related risks and take appropriate action in relation to them, including addressing the potential for reputational harm.

It is also important to remember that companies that do not produce significant carbon emissions are also likely to be affected by climate change litigation. For instance, accounting firms may be obligated to report climate change risk in their clients’ financial disclosures, and institutional investors and insurers are smart to consider such risk in the course of their business operations.

Much like the tobacco litigation of the past, climate justice is building a movement intent on companies taking responsibility for the damage they cause. Courts are increasingly being used to develop mechanisms for climate justice in the absence of political solutions, and the Lliuya case is an example of this. The political process is considered too slow and ineffectual and there is a growing trend to bring actions against private companies directly. Such actions are spurred on by public support: the Lliuya case, for example, is supported by Germanwatch, the nonprofit organization, and has a crowdfunding campaign behind it.

Strategic litigants will develop new types of causation arguments and draw on new research in climate attribution to support them. The Carbon Majors Report already exists, which attributes GHG emissions to individual companies. If courts are prepared to accept this as evidence, this case may well serve as a theoretical model for future lawsuits in other countries.

Deepa Sutherland is a solicitor and José Umbert and Jason Reeves are partners at Zelle LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] § 1004 of the German Civil Law code (BGB).

[2] Urgenda Foundation v. Kingdom of the Netherlands (Netherlands)

[3] The 2014 study “Carbon Majors: Accounting for carbon and methane emissions 1854-2010 – Methods & Results Report” by Richard Heede.

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